Updated 10/16/2020; 12:18 P.M. EST

Tax Updates

COVID-19 Relief

Below is a summary of relief measures available to individuals and businesses as well as links for additional information.  Please note, the interpretation of these laws and regulations are changing rapidly and are subject to change.  We are providing information to you as it becomes available and will update you with any changes as necessary.

 

  • There is now a simplified forgiveness application for those who received a PPP loan of $50K or less.  Below is a link for info on that and instructions that clients can utilize. https://www.sba.gov/article/2020/oct/08/sba-treasury-announce-simpler-ppp-forgiveness-loans-50000-or-less   

  • Governor Mills announced the New Maine Economic Recovery Grant Program, funded by $200 million in Federal CARES Act Coronavirus Relief Funds (CRF), to provide financial relief for businesses and non-profit organizations that incurred business disruptions as a result of the COVID-19 pandemic. Maine Economic Recovery Grant Program

  • Processing Pending Payments AND Delayed Refund Payments During COVID-19 -The IRS has warned taxpayers that if they mailed checks (either with or without tax returns), the checks may still be unopened in the backlog of mail the Service is processing due to COVID-19. Any payments will be posted as the date the IRS receives them rather than the date the Service processed them. Penalties and Interest :To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available so the IRS can process them. Refunds:  If you have found that your refund has not been processed, the IRS stated they started to issue some of these refunds and that interest will be paid from July 15 until issued but that the interest will be paid separate from the refund. ( Added 8/19/2020)

  • Taxpayer Economic Impact Payment (stimulus)- Millions of Americans have already received their Economic Impact Payments authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Internal Revenue Service (IRS) continues to calculate and automatically send the Payments to most eligible individuals, however some may have to provide additional information to the IRS to get their Payments. Below is a link to the IRS info center related to these Payments.  https://www.irs.gov/coronavirus/economic-impact-payment-information-center

 

  • Recovery Rebate – Includes advance refunds of a 2020 tax credit.  Credits are $1,200 per adult and $500 per qualifying child. A qualifying child is a dependent who has not attained the age of 17. The phaseouts begin at $150,000 for joint filers, $75,000 for individuals and $112,500 for head of household filers.  The rebate will be based on 2019 tax returns, 2018 if 2019 has not yet been filed.  Overpayments will not be clawed back however taxpayers who receive a smaller benefit than they are eligible for based on 2020 income will receive the difference.  The rebate is not considered taxable income.  Social Security recipients won't need to file a tax return to receive the rebate. An individual that is 17 and older that was claimed as a dependent on a 2018 or 2019 tax return used for the purposes of this credit, will need to file a 2020 tax return to obtain the $1,200 credit and not be claimed as a dependent.  For individuals that did not have direct deposit on their 2018 or 2019 tax return used for the purposes of this credit, a check will be mailed to the address on such return.  For more information including a stimulus check calculator go to: https://www.kiplinger.com/article/spending/T063-C000-S001-stimulus-checks-2020-how-much-when-and-other-faqs.html To file simple Federal tax returns, visit: https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free?fbclid=IwAR2xSfDQirAWVRaCcwrP-qlA6Ki-sk1H2xq3JHT40BNkr292m8iac9wf0jk, For assistance, please visit:  https://www.irs.gov/coronavirus/economic-impact-payments. 

  • IRS announces significant enhancements to the “Get My Payment” tool to deliver an improved and smoother experience for Americans eligible for an Economic Impact Payment. Please visit: www.irs.gov/getmypayment

 

 

  • Payroll Tax Credit Refunds – Advance refunds are available for payroll tax credits related to required paid sick leave and required paid family leave.  The IRS is also waiving penalties for failure to deposit payroll taxes under Sec. 3111(a) or 3221(a) or if the failure was due to an anticipated payroll tax credit.  For more information contact your payroll provider.

 

  • Payroll Taxes – 50% of the 2020 employer’s share of the Social Security payroll taxes are due by December 31, 2021 and the remaining 50% by December 31, 2022.  The deferral of payroll taxes cannot be combined with the small business interruption loans. For more information contact your payroll provider.

 

  • Employee Retention Tax Credit – is a refundable payroll tax credit available to certain employers.  To qualify, business must have been carrying on business in 2020 and whose business was fully or partially suspended by a governmental authority or a business whose gross receipts declined by more than 50% when compared to the same quarter of the previous year.  If a business has less than 100 employees, all paid wages qualify for the credit.  If a business has over 100 employees, only the employees not providing services due to the closures or employees contributing to the drop in gross receipts are used in the calculation. To be considered an employee, an individual must be an active employee as of April 1, 2020.  Employees terminated or laid off prior to April 1, 2020 do not qualify.

 

Credits can be in the form of:

  • A credit against employment taxes which is equal to 50% of qualified wages (includes health insurance expenses).  Qualified wages include wages up to $10,000 for each employee therefore, credits can be up to $5,000 per employee or

  • A credit of employer gross receipts if gross receipts are 50% or less for the same quarter in a prior year until gross receipts exceed 80% of the gross receipts for the same quarter in the previous year.

 

The credit cannot exceed applicable employment taxes and must be reduced by any payroll tax credits mentioned above.  This credit will be claimed on Form 941.  This credit cannot be combined with the Work Opportunity Credit or the small business interruption loans. For more information visit: https://www.gordonrees.com/publications/2020/employee-retention-tax-credit-cares-act  https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act  

  • Additional Credits – Three new credits available to many businesses affected by COVID-19. Paid Sick Leave, Employee Retention ( explained above) and Paid Family Leave. For full descriptions visit : https://www.austinpa.com/aablog 

  • Student Loans – Employers may contribute up to $5,250 annually towards an employee’s student loans and the amount excluded from the employee’s income.  This relief does not apply to spouses or dependents of business owners.  A credit for student loan interest cannot be claimed on an individual’s tax return for any portion of a loan being paid by an employer. For more information regarding student loans visit: https://www.forbes.com/sites/zackfriedman/2020/03/26/student-loans-coronavirus/#48ffa4587b70

 

  • Retirement Plans

  • Taxpayers can take up to $100,000 in virus related distributions without being subjected to the extra 10% penalty; however, normal income taxes will still be required on distributions. Distributions are eligible through December 31, 2020.  Withdrawals are taxable over a three-year period; however, distributions may be repaid within three years without affecting retirement account caps.

  • RMDs are suspended

  • In relation to single-employer plans, contributions for 2020 minimum required contributions may be delayed until 2021.

  •  For more information visit: https://www.sgrlaw.com/client-alerts/retirement-plan-relief-in-the-cares-act/

 

  • SBA Loans – Paycheck Protection Program (PPP Loans)

  • The application form can be found at: https://home.treasury.gov/system/files/136/PPP-Lender-Application-Form-Fillable.pdf

  • Up to $10M

  • Loans proceeds used for payroll, health benefits, paid sick, paid medical leave, interest payments on mortgages, rent and utilities expended within a 24 week period (borrowers who already received PPP funds can opt to use an 8-week coverage period) following the loan origination date may be forgiven through an application process completed via the lender. If at least 60% of the loan proceeds are spent on payroll costs.  If less than 60% of loan proceeds are used on payroll costs, the borrower will be eligible for partial loan forgiveness

  • If a borrower cannot return to their same level of business or cannot return to or retain the number of full-time equivalents pre-February 15, 2020, a safe harbor from reductions in loan forgiveness will be provided

  • Loan proceeds forgiven shall not be included in gross income for income tax purposes

  • PPP expenses that are paid from PPP proceeds that are eventually forgiven are not deductible. 

  • The new PPP loan forgiveness applications have been released by the Treasury.  These new applications reflect the changes that were signed into law via the PPP Flexibility Act.  There is an EZ version of the forgiveness app and there is a “regular” long version.  If you need to utilize one of the Safe Harbors to maximize your loan forgiveness, you’ll use the regular form.  The Safe Harbors may need to be used by those of you whose businesses were substantially affected by shut down and spacing orders. These allow for an elimination of the forgiveness reductions associated with not returning to full, pre-pandemic, staffing levels and/or compensation levels. The Loan Forgiveness Applications can be found here: EZ Formhttps://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf and Long Formhttps://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf

  • No collateral or personal guarantees are required

  • Interest rates may not exceed 4% but are anticipated to be fixed at 1%

  • Loans mature in five years

  • The first payment due under this loan is deferred until the date of the loan forgiveness.  If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period, the borrower must begin to make loan payments.    

  • No prepayment penalties

  • No loan fees (SBA will establish maximum application fees for lenders that charge)

  • No recourse for non-payment unless the proceeds are used for an unauthorized purpose

  • Entities are eligible to apply through June 30, 2020

  • The max loan is equal to 2.5% of your average monthly payroll costs (various calculations apply) 

  • Entities are limited to one loan

  • If you take an EIDL loan (see below), and then get a PPP loan, the $10,000 grant will be folded into the PPP allocation

  • Generally, SBA loans cannot be combined with CARES Act credits mentioned above

  • To apply go to: https://disasterloan.sba.gov/ela/Information/ApplyOnline

  • For more information go to: https://www.sba.gov/ and/or https://www.sbc.senate.gov/public/_cache/files/9/7/97ac840c-28b7-4e49-b872-d30a995d8dae/F2CF1DD78E6D6C8C8C3BF58C6D1DDB2B.small-business-owner-s-guide-to-the-cares-act-final-.pdf and/or https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf

  • For information regarding how to record a PPP loan for financial statement purposes , please visit: https://www.aicpa.org/content/dam/aicpa/interestareas/frc/downloadabledocuments/tqa-sections/tqa-section-3200-18.pdf

  • SBA Loans – Small Business Debt Relief Program –  

  • 7(a), 504 or microloans

 

  • Emergency Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants

  • Advance in the form of a Grant to be received within three days of the application to businesses harmed by the COVID-19.  The amount of the advance will be determined by the number of your pre-disaster employees prior to January 31, 2020.  The advance will provide $1,000 per employee up to a maximum of $10,000

  • Businesses must first apply for the EIDL and then request the advance of the grant funds

  • Grants are NOT repaid under any circumstance (grants are separate from the loan funds)

  • Disaster loans are available up to $2M

  • Terms are up to 30 years

  • Interest rates are 3.75% and 2.75% for nonprofits

  • First payment due under this loan is deferred for 1 year 

  • Loan proceeds can be used for fixed debts, payroll, accounts payable, and bills that cannot be paid due to COVID-19

     Note: loan proceeds are not forgiven. 

 

  •  Frequently Asked Questions pertaining to both PPP and EIDL (US Department of Treasury)

        Please visit: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses

  • Charitable Deductions – There is up to a $300, (it is speculated this will be $600 for joint filers) above the line charitable deduction for cash donations paid to qualifying charities for taxpayers taking the standard deduction. Qualifying charities do not include donor advised funds or supporting organizations. For tax payers that are itemizing the AGI limitations have also been increased to 100% for an individual and 25% for corporations.  Deductions for food contributions have been increased to 25%.

 

  • Health plans

  • Private insurance plans must cover COVID-19 treatments and vaccines

  • All coronavirus testing is free

  • Health plans now cover telehealth and other remote care services without charging a deductible

For the CARES Act visit: https://www.documentcloud.org/documents/6819206-CARES-ACT-FINAL-TEXT.html

© 2020 Austin Associates

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